Avenue Supermarts slips 9% after a disappointing Q3 result

Shares of Avenue Supermarts, which owns and operates D-Mart supermarket chain, fell 9 per cent to Rs 1,423 apiece on the BSE in early morning trade after it reported a disappointing set of numbers for the quarter ended December 31, 2018 (Q3FY19).

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The company has posted 2.1 per cent year-on-year (YoY) growth in net profit at Rs 257 crore. It had a profit of Rs 252 crore in the same quarter last fiscal. The net profit growth during the quarter under review was slowest in eight quarters.

EBITDA (earnings before interest, tax, depreciation and amortization) margin declined 200 bps to 8.3 per cent in Q3FY19 from 10.3 per cent in Q3FY18.

The company said its net profit during the quarter under review was flat, primarily due to gross margin reduction on account of price cuts.

"Operating costs inched upwards due to preloading of certain expenses primarily around capability building across infrastructure and people." the company said in its exchange filing.

Total revenue of Avenue Supermarts, one of the largest food & grocery retailers in India, grew 33.2 per cent at Rs 5,451 crore against Rs 4,094 crore in the corresponding quarter of previous fiscal.

Motilal Oswal Securities expects standalone revenue to grow 35 per cent YoY on back of strong SSSG (led by festive season uptick) and new store additions. The brokerage firm had expected 170 bps contractions in EBITDA margin to 8.6 per cent.

However, analysts at Antique Stock Broking expect Avenue Supermarts to be able to maintain gross margin between 14.5-15 per cent and EBITDA margin between 8.5-9 per cent during FY19-21e.

“Therefore, on the back of consistent store addition (25 stores each year) and relatively stable margins we expect Avenue Supermarts to grow EPS at 33 per cent CAGR during FY18-21e," the brokerage firm said, maintaining BUY rating on the stock with a target price of Rs 1,817.

Avenue Supermarts had outperformed the market by surging 34 per cent from its recent low of Rs 1,170 on October 24, 2018. In comparison, the S&P BSE Sensex was up 6 per cent during the period till Friday.

At 09:45 am, the stock was trading 8 per cent lower at Rs 1,442, against 0.43 per cent decline in the benchmark index. The trading volumes on the counter more than doubled with a combined 1.23 million equity shares changed hands on the BSE and NSE so far.